A Step-Up In Basis to Reduce Capital Gains

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The step-up in basis allows a person that inherits an asset to use the fair market value of the asset at the time of inheritance as the cost basis for taxes when it comes time to sell.  In short, it reduces the capital gains tax on inherited assets.  This is very beneficial for assets that have greatly appreciated in value before being passed to heirs.  To help your understanding, keep in mind that the larger the difference between the “cost basis” and the “selling price,” the more someone pays in taxes. 

Rationale Behind the Step-Up In Basis

The step-up in basis exists because many properties or stocks have been held long-term by owners.  This has resulted in considerable gains.  If someone inherits property based on the ORIGINAL purchase price, that seems almost unjust.  Furthermore, it may be very hard to determine the actual original purchase price. 

How to Calculate the Step-Up in Basis

You calculate the step-up in basis based on the “date of death” value.  It is basically the fair market value on the date of death.  In probates, that is why “date of death” values are so important.  We use this precise figure to determine the amount of assets.  This value is important as the beneficiary needs to report the capital gain or loss when the asset is sold.  

Ladybird Deeds Do Not Impact Step-Up in Basis

The great thing about a ladybird deed is that the property will receive a step-up in basis upon your passing.  This means that the property will be valued at the fair market value at the date of your passing.  This is just one reason why use of a ladybird deed, as opposed to a quitclaim deed, may be more beneficial to your family.  
In short, the step-up in basis is an effective way to preserve an inheritance and save paying a lot in capital gains taxes.  

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Lori Vella is an Estate Planning and Business Attorney. She works virtually throughout Florida and New York, but has her home office in Tampa, Florida. She is mom to a little boy which ignited the passion for helping other families. She and her son enjoy car rides, playgrounds and taking mini-adventures. They also have an organic garden that surprisingly yields vegetables. Lori considers herself well-versed in Seinfeld and welcomes any trivia!

Disclaimer: The Law Office of Lori Vella’s website contains general information directed to Florida residents. This firm does not intend to give legal advice through its pages and/or blog. If you need legal advice, we encourage you to find an attorney licensed in your state. This language on this website does not create an attorney-client relationship between you and this firm.

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